SME lending remains subdued despite annual growth

Overall gross lending to UK small and medium-sized businesses (SMEs) showed a year-on-year increase during the second quarter of the year, but remained subdued compared to pre-pandemic levels.

According to data from UK Finance’s Business Finance Review 2024 Q2, overall gross lending to UK SMEs stood at around £4 billion during the second quarter of 2024, broadly stable with figures seen in Q1 2024, but up from £3.6 billion during Q2 2023.

However, UK Finance added that appetite for new finance was “subdued” in spite of the annual growth, with many businesses said to be prioritising the repayment of loans taken on during the COVID-19 pandemic.

There was significant variation in lending across different sectors and regions during the first half of the year. Lending to industries including construction, agriculture and real estate saw noticeable increases in H1 2024 compared to the previous year, whereas there were declines in lending to transport, manufacturing, storage and communications SMEs.

Regionally, the strongest growth in SME lending was seen in the East Midlands and the North West during H1, while the only region to see a decline during the period was Yorkshire and Humberside.

Following a shallow recession at the tail end of 2023, UK Finance stated that surveys indicate that there is improving sentiment across all sectors heading into the latter half of 2024.

Despite a “notable uptick in insolvencies”, UK Finance noted that these remained lower as a share of businesses compared to the levels seen during the 2008/09 downturn. However, the report added that insolvencies “will remain an important metric to watch as the economy continues to recover”.

There was a sizeable increase in overdraft approvals for small businesses during Q2, as well as moderate increases for loan and overdraft approvals for medium-sized firms. Approval volumes across all sectors in the second quarter were up compared to Q2 2023, following lower lending levels seen after the COVID-19 pandemic.

Total deposit value levelled off in the second quarter, with SMEs retaining decent savings cushions (£220 billion) that were accumulated during the pandemic. Total deposits remained at roughly 14 per cent, with the declining trend seen across all sectors.

Repayment value was reported to have remained stable over the past year at approximately £6 billion per quarter. According to the report, this level is expected to persist, with many SMEs having outstanding loans taken on during the pandemic that still have a few years of repayments left.

Commenting on the report, UK Finance Managing Director of Commercial Finance David Raw said: “With many businesses prioritising repaying Covid-19 loans, appetite for new finance remains subdued. However, finance is still there for SMEs where it is affordable. As the economy looks to turn a corner, the finance sector remains ready to provide it with the funds it needs to manage cash flow, and to invest and grow. Looking to the future, lenders can help businesses with planning their transition to Net Zero and any other long-term goals.”


A genuine counterpart to the US SBA loan scheme could help UK SMEs to make acquisitions and fully unlock their growth potential

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